How to Read an IPO Prospectus (DRHP): The 20% That Tells You 80%

A mainboard IPO prospectus in India runs into hundreds of pages. Most investors skip it and go by the grey market premium instead, a number that appears nowhere in the document.

They do not need all of it. Six sections, roughly forty pages, carry most of what a first pass requires, and you can work through them in about 90 minutes. This is the map.

Three versions exist, and only one is useful when you are deciding whether to apply.

• DRHP: the draft filed with SEBI. No price band, no dates.

• RHP: filed after SEBI's observations. Carries the price band, lot size and issue dates. This is the one to read.

• Prospectus: the final document, with the discovered price, after book building.

All three are free on the SEBI, exchange and company websites, and since March 2026 every application form carries a QR code linking to the document. If the company used SEBI's confidential pre-filing route, as Swiggy and Groww did, the public document arrives closer to the issue, which means a shorter reading window rather than a red flag.

• Abridged prospectus: 10 minutes. The map.

• Objects of the Offer: 10 minutes. Where your money goes.

• Capital Structure and lock-ins: 10 minutes. When new supply arrives.

• Risk Factors, first ten: 15 minutes. What can go wrong.

• Financials and KPIs: 25 minutes. Whether profit becomes cash.

• Basis for Offer Price: 15 minutes. What you are paying.

Read them in that order. Each one tells you what to look for in the next.

Since March 2026 the abridged prospectus follows a fixed format and is published at the draft stage alongside the DRHP. SEBI prescribes the contents: business, promoters, objects, shareholding before and after, restated financials, KPIs, the top ten internal risk factors, the weighted average cost of acquisition for promoters and selling shareholders, auditor qualifications and litigation. Each section points to the relevant page of the full document.

Read it first and note whatever surprises you: litigation that looks large next to profit, an auditor qualification, heavy related party dealings. Those notes become your question list for everything that follows.

An IPO has two possible parts. A fresh issue creates new shares and the money goes to the company. An offer for sale is existing shareholders selling their own shares, and the company receives nothing from it.

The split varies enormously. Hyundai Motor India in October 2024 and LG Electronics India in October 2025 were both entirely offers for sale, with every rupee going to the Korean parent. The September 2026 NSE IPO is the same. HDB Financial Services' Rs. 12,500 crore issue in June 2025 was Rs. 2,500 crore fresh and Rs. 10,000 crore offer for sale.

None of that is wrong, and early investors are entitled to an exit. But a mostly offer-for-sale issue is an exit rather than a fundraise, and the rest of the document reads differently once you know which one you have. Within the fresh issue, check the vague uses: SEBI caps general corporate purposes at 25% of the amount raised, and 35% including unidentified acquisitions.

This chapter shows promoter holding before and after the issue. Compare the fall against the list of selling shareholders, since it matters whether the promoters are selling or only the early funds. If there is a fresh issue, divide new shares by post-issue shares to see your dilution.

Then mark the lock-in dates, because they set the supply calendar after listing.

• Promoters: minimum contribution of 20% of post-issue capital locked for 18 months, or three years where most of the fresh issue funds capital expenditure.

• Other pre-issue shareholders: six months, with some exceptions.

• Anchor investors: half the shares for 30 days, the rest for 90 days.

You do not need all seventy on a first pass. Risk factors are presented so that the more material ones receive greater prominence, which makes the opening ten the ones worth your time. Look for specifics: a few customers contributing most of the revenue, dependence on one supplier or one country, litigation with amounts attached, reliance on a single regulatory approval, or negative operating cash flow.

A quick test. If a risk factor could be pasted into any other prospectus unchanged, it is probably generic, though not automatically harmless. If it could not, read it twice.

The document presents restated financials, meaning adjusted to one accounting basis so the periods compare, typically three years plus the latest stub period. Four checks do most of the work.

• Direction. Is revenue growing, and are margins stable, rising or falling across the three years?

• Cash against profit. Put profit after tax next to cash flow from operations, year by year. Profit that rarely becomes cash is a warning.

• Timing. A company that turned profitable in the exact year before its IPO deserves a slower read. Check whether the swing came from operations or from other income.

• Debt. Debt to equity, interest coverage, and whether borrowings are growing faster than the business.

While you are in the notes, size the related party transactions against revenue. Then read the KPIs, which SEBI requires companies to disclose if they were shared with pre-IPO investors and to keep reporting after listing. Those operating numbers explain the financials.

This section gives earnings per share, return on net worth and the P/E at the issue price, alongside the P/E of listed peers. Read the peer list critically, since the issuer and its advisers selected it. If it says there are no comparable listed companies, you will have to lean on other methods.

Then find the weighted average cost of acquisition disclosed for promoters and selling shareholders. The gaps can be stark. In the September 2026 NSE IPO, the RHP shows State Bank of India's weighted average cost at Rs. 0.80 per share against a price band of Rs. 1,700 to Rs. 1,785. In Groww's November 2025 IPO, selling shareholders' average cost ranged from Rs. 0.29 to Rs. 37.94 against an upper band of Rs. 100.

Read those gaps correctly. A tiny cost mostly reflects how early a seller came in, so it tells you what the seller earns, not whether the price is fair. Recent arm's-length deals are the better benchmark: look for pre-IPO placements or secondary transactions close to the issue, and ask what changed if they were far below the offer price.

Knowing what to ignore is half of this approach. Leave these for later unless something specific pulls you back:

• Key Regulations and Policies, and Government and Other Approvals, unless the business depends heavily on licences.

• Main Provisions of the Articles of Association.

• Other Regulatory and Statutory Disclosures, and the generic Offer Procedure.

Treat the Industry Overview as one source rather than the last word, since it may be commissioned by the company, as the document discloses. Read Our Business alongside the financials so the numbers have context.

• Anchor book, from 30 November 2025: 40% reserved for domestic long-term money, 33% for mutual funds and 7% for insurers and pension funds, up from one-third.

• Minimum float, from 13 March 2026: a company above Rs. 5 lakh crore post-issue market capitalisation must offer at least Rs. 15,000 crore and 1% of shares, subject to a 2.5% floor, with longer timelines to reach 25% public shareholding.

• Lock-in enforcement, March 2026: pledged pre-issue shares can be marked non-transferable during lock-in.

• SME rules, March 2025: tightened profitability eligibility, offer for sale limits and minimum application size, with a further review approved in June 2026.

The practical effect is that very large listings can arrive with a thinner public float than before, with more shares reaching the market over the following years.

The GMP is an unofficial, unregulated price at which IPO shares change hands before listing, and it misses in both directions. Business Standard found that 56 of the 101 mainboard IPOs listed in 2025 debuted below their reported grey market price. Before LG Electronics India listed, the GMP implied about Rs. 1,510 and the stock opened near Rs. 1,710.

Two bits of plumbing while you are here. Companies meeting SEBI's profitability track record reserve at least 35% of the issue for retail, while those listing under the alternative route reserve not more than 10%, which is why allotment odds in many new-age IPOs are poor. Approve your UPI mandate before the closing-day cut-off, and listing follows three working days after the issue closes.

• Open the RHP, not a review. Reviews give you someone else's conclusion.

• Read the abridged prospectus first. Whatever surprises you becomes your question list.

• Know the offer-for-sale share. How much goes to sellers, and how vague is the fresh issue?

• Mark the lock-in dates. They tell you when restricted shares can be sold.

• Start with the first ten risk factors. Keep the ones that could not fit any other company.

• Put cash flow next to profit, then check debt. A profit spike before an IPO is a question, not an answer.

• Compare the offer price with recent deal prices. Then check the peer list yourself.

• Treat the GMP as sentiment, not valuation. It is not in the document and it moves daily.

A prospectus is not written to be read cover to cover. The abridged prospectus gives you the map, the Objects tell you where the money goes, the lock-ins tell you when supply arrives, the risk factors tell you what can go wrong, the financials tell you whether profit becomes cash, and the Basis for Offer Price tells you what you are paying.

For a first pass, you do not need to read the whole prospectus. You need to know which 40 pages deserve your attention first.

[1] SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2026, Notification No. SEBI/LAD-NRO/GN/2026/299 dated 16 March 2026: draft abridged prospectus at the DRHP stage, standardised Part E format, removal of the Summary of the Offer Document, QR code and link on application forms, and non-transferability of pledged pre-issue shares during lock-in.

[2] SEBI (ICDR) amendment notified 31 October 2025, effective 30 November 2025: anchor reservation raised to 40%, comprising 33% for mutual funds and 7% for life insurers and pension funds.

[3] Securities Contracts (Regulation) Amendment Rules, 2026, G.S.R. 184(E), notified 13 March 2026, substituting Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957: graded minimum public offer, including Rs. 15,000 crore and 1% above Rs. 5 lakh crore with a 2.5% floor, and extended minimum public shareholding timelines.

[4] SEBI (ICDR) (Amendment) Regulations, 2025, No. SEBI/LAD-NRO/GN/2025/233, notified March 2025: SME eligibility, offer for sale limits and minimum application of two lots above Rs. 2 lakh. SEBI press release on the board meeting of 19 June 2026 approving a review of the SME fundraising framework.

[5] SEBI (ICDR) (Third Amendment) Regulations, August 2021: promoter lock-in of 18 months, three years where the majority of fresh issue proceeds are for capital expenditure, and six months for most other pre-issue shareholders. SEBI board decisions of December 2021 and ICDR amendments of January 2022: anchor lock-in of 30 and 90 days, and caps of 25% on general corporate purposes and 35% including unidentified acquisitions.

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